Secret Plans to Withdraw Greece from the Euro

It is reported this morning by the BBC that the meeting of the International Monetary Fund (IMF), held over the weekend in Washington, has considered a plan for an orderly fault of Greek debt involving a 50% write down of the debt coordinated with extra funds to bolster European Banks. This looks on the face of it like another attempt to kick the can down the road delaying real action; but this time it could be different.

It is clear that Greece cannot pay its debts so is in effect bankrupt. World bankers do not want to admit this in public but it will have been at the top of the agenda behind the closed doors of meetings amongst the inner circle of IMF officials.

The 50% write-down plan buys time in that it looks possible that Greece could pay its way out of the reduced debt burden, but this does not address the core problem. From the viewpoint of outsiders, the demands for reform in Greece may look reasonable but inside Greece these are politically impossible. Greece needs the freedom to sort out its own affairs in its own way. Greece fiddled the figures to get into the Euro and it cannot now dig itself out of the financial hole except by leaving the Euro – in addition to defaulting on its sovereign debt.

I would hope that the IMF, ECB and central bankers now have a secret plan for Greece to exit the Euro in an orderly fashion – if this is still possible at this late stage in the crisis. De La Rue, the trusted bank note printer will have been given a contract (under great secrecy) to print Greek Drachma and these are now held securely in a warehouse in London waiting to be airlifted at two hour’s notice. The plan will include freezing Greek bank deposits immediately before the public announcement to prevent a run on the banks. There will then be a firestorm through the financial system as the reality takes hold but not as bad as people fear. There might be relief that the inevitable has come to pass and, if the plan has worked out how to prevent Italy following the exit route, it is possible that stability will return.

The secret plan to eject Greece from the Euro needs a good cover story. The discussion of a 50% write down on Greek debt might be a suitable distraction to give the ECB and central bankers the time they need to prepare.

Are the IMF and ECB kicking the can down the road, in desperation or with quite confidence that they have a secret plan for real action? Over the coming months the truth will emerge.